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Greenspan Says Stocks to See ‘Significant Correction’

Bloomberg News by Christopher Condon

greenFormer Federal Reserve Chairman Alan Greenspan said equity markets will see a decline at some point after surging for the past several years.

“The stock market has recovered so sharply for so long, you have to assume somewhere along the line we will get a significant correction,” Greenspan, 88, said today in an interview on Bloomberg Television’s “In the Loop” with Betty Liu. “Where that is, I do not know.”

While Greenspan said he didn’t think equities were “grossly overpriced,” his comments come amid growing concern that interest rates near record lows are creating asset-price bubbles. Fed Chair Janet Yellen said in July 16 congressional testimony that while she saw signs of high valuations in some markets, prices overall — including for U.S. stocks — weren’t out of line with historical norms.

The Standard & Poor’s 500 Index has gained 17 percent in the past year and almost tripled since March 9, 2009, its low point during the financial crisis. The benchmark index fell 0.1 percent to 1,967.88 in New York at 10:51 a.m.

Forty-seven percent of financial professionals said the equity market is close to unsustainable levels while 14 percent already saw an asset-price bubble, according to the quarterly Bloomberg Global Poll conducted July 15-16.

Greenspan said he measures stock valuations by looking at their rate of return over sovereign debt yields.

‘Exceptionally High’

“I would say that’s closer to normal after being exceptionally high, and that means we are not yet in a stressful position,” Greenspan said. He served as chairman of the Fed for more than 18 years, stepping down in 2006.

Yellen said in semi-annual testimony that the Fed must press on with monetary stimulus as “significant slack” remains in labor markets and inflation is still below the Fed’s goal. The Federal Open Market Committee is scheduled to release a policy statement at 2 p.m. today in Washington.

The Fed’s Taper

Even if Yellen agreed that bubbles were emerging, she’s expressed doubt monetary policy can do much to stop them.

“Monetary policy faces significant limitations as a tool to promote financial stability,” Yellen said July 2 at the International Monetary Fund in Washington. “A macroprudential approach to supervision and regulation needs to play the primary role.”

In testimony before the House Financial Services Committee, Yellen said valuations “appeared stretched” in some sectors. She identified lower-rated corporate debt as an area the Fed is closely monitoring.

Financial Stability

“The committee recognizes that low interest rates may provide incentives for some investors to reach for yield,” she said. “My general assessment at this point is that threats to financial stability are at a moderate level and not a very high level.”

Greenspan said U.S. economic growth, along with a tightening labor market, “are indicating that at this stage we will run into upside pressures in the money markets and inflation sooner than most of us had expected.”

Gross domestic product rose more than forecast in the second quarter, at a 4 percent annualized rate, the most since the third quarter of 2013, after shrinking 2.1 percent from January through March, Commerce Department figures showed today.

Still, he worried that long-term capital investments had slumped, potentially undermining the recovery.

“The capital stock is growing far less than we would have thought it should at this stage,” Greenspan said. “That, in turn, tells us that productivity is going to have difficulty accelerating.”

Defense Needs

The former Fed chairman also said future government spending, potentially driven by increased defense needs and by global warming, could put pressure on the U.S. budget, with implications for the dollar.

“The dollar is held in such extraordinary esteem around the world. It’s the ultimate source of value,” he said. “We may not be able to continue if we are going to follow the fiscal road we are currently on.”

Greenspan said he believed oil prices would drop $15 to $20 per barrel if not for unrest in the Middle East.

“We have a very significant amount of excess capacity and slack,” he said. “There is an essential premium in the market” caused by questions over whether long-term supplies are secure.


Posted by:  Steven Maimes, The Trust Advisor


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Whistleblower Lawsuit Claims Vanguard Failed to Pay “Hundreds of Millions” in Taxes

Philadelphia Business Journal news by Jeff Blumenthal

vanA former Vanguard Group employee sued the mutual fund giant, claiming it has operated a massive tax shelter for all of its nearly 40 years of existence.

The suit, unsealed in the New York Supreme Court in Manhattan Friday, said the Malvern, Pa.-based company avoided paying hundreds of millions of dollars worth of state and federal income taxes each year.

Vanguard denies the charges, levied in a lawsuit filed on May 8, 2013 by David Danon, a former tax manager in the company’s general counsel office before he was terminated. The suit was filed as a “Whistleblower” action (New York False Claims Act).

Danon’s lawyer, Brian Mahany, said Vanguard has had a duty to file returns and pay taxes since at least 2004 because the company earns considerable fees for managing New York’s 529 (college savings) plans, earns massive fees from its individual New York customers, and has staff regularly working in New York. Neither New York tax returns have been filed nor state tax payments have been made since 2004, he said.

“We generally do not comment on pending litigation, but we believe it is important to emphasize that Vanguard adheres to the highest ethical standards in every aspect of our business,” Vanguard spokesman David Hoffman said in a statement. “It is also important to note that Vanguard operates under a unique mutual structure and has a long history of serving the best interests of its shareholders. We believe that this case is without merit, and we intend to defend the matter vigorously.”


Posted by:  Steven Maimes, The Trust Advisor


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Sibling Rivalry in Probate Disputes

MetroWest Daily News article by Patricia L. Davidson

fighting over dollarsGenetically, siblings are our closest family members. But when it comes to litigation over family property or money, siblings can quickly become our biggest adversaries.

In disputes concerning wills or trusts, dormant – or not so dormant – sibling rivalry often emerges. Siblings of all ages, and of all economic or professional statures, have a tendency to dig in their heels, fight for control and often be profoundly pigheaded when legal and family matters collide. While probate disputes are ostensibly about money, the core of most probate litigation concerns decades of complex and emotional family issues. Indeed, a large percentage of sibling squabbles involves people in their fifties and sixties.

Siblings can become involved in probate litigation in many ways. A sibling may try to challenge a parent’s will. One sibling may try to set aside a conveyance of real estate, or transfer other assets that a parent made to another sibling. Several cases concern whether a sibling who is an executor is fulfilling his or her duties to the other beneficiaries.

Many conflicts begin when a parent treats children unequally in a will or trust. A testator certainly can do what he or she wants with his or her property. The profligate son or nasty daughter may very well not deserve an equal share. Or it may seem unfair if the CEO son receives as much as his schoolteacher brother. But it is very difficult for a child of any age to accept unfair treatment.

Wealth or professional status often does little to mitigate the myriad motions someone feels when a parent treats a brother or a sister more favorably. These emotions can fuel litigation. While all litigation should be based on good faith legal claims supported by facts, very often these emotions – right or wrong – prolong and complicate the litigation.

Parents, when devising estate plans, should consider sibling dynamics, and should consider both the emotional and financial consequences of treating children differently. There are good arguments for treating each child equally. There are also good arguments for recognizing each child’s economic circumstances. Well-drafted estate plans can greatly reduce the types of legal claims a disgruntled child can make.

Disputes often arise when one sibling cares for an aged or ailing parent while another sibling remains distant, either geographically, psychologically or both. Often the child that is closer will be involved in the parent’s financial affairs and likely has made personal sacrifices to care for the parent. Not surprisingly, a parent will often treat this child preferentially in a will. Upon the death of the parent, the more distant child may become suspicious or resentful of the closer sibling.

But sometimes the caretaker child is not quite a saint. This child may feel entitled and try to exert undue influence upon the parent to convey assets or change estate plans for the child’s benefit. The courts are filled with cases where a child misuses a power of attorney or otherwise takes advantage of a vulnerable parent. These cases are challenging because the caretaker child may be part martyr and part scoundrel. The distant sibling may have a hard time contradicting the closer sibling’s testimony about what the parent said or did. The closer sibling may rationalize, exaggerate or outright lie.

And there are certainly many cases where the closer sibling has acted appropriately and the distant sibling’s suspicions stem from envy, guilt or just misunderstanding. Ultimately, a court may have to decide what the parent intended, and whether the parent understood any changes to the estate plans or to the title of assets. A court will typically consider a parent’s medical history, competency and relationship with each child in addition to the circumstances of the questionable changes.

Similar issues can arise when one sibling is appointed personal representative of a parent’s estate. A personal representative has a fiduciary duty to administer an estate in accordance with the law and in the best interests of all the beneficiaries. Carrying out these responsibilities can be difficult if other siblings resent the appointment or otherwise let emotions interfere with the administration of the estate. Conversely, there are numerous situations where the personal representative takes advantage of the position and uses his or her authority to engage in self-serving conduct to the detriment of the other beneficiaries. Litigation may be necessary to correct any wrongful conduct.

Disputes also arise when siblings must dispose of a parent’s personal property, i.e. assets other than money or real estate. Often, a testator may not make specific bequests of personal property in his or her will. Or someone may die intestate, meaning without a will. If so, it may be up to the children to decide how to divide their parent’s personal property.

Dividing up the family china can become an emotional and expensive task if the parties are unduly materialistic, obstinate or sentimental. These scenarios provide occasions for sometimes Solomon-like resolutions such as picking cards to determine the order of selecting certain items. Such schoolyard justice may help quell the emotion and provide an ultimately fair disposition.

These sibling disputes are why parents, as difficult as it may be to talk about finances or mortality with their kids, should communicate with their adult children about post-mortem planning. Unfortunately, few do. Many adult children are surprised to learn upon their parents’ deaths that their parents had much more or much less than they expected. Setting reasonable expectations helps minimize problems when a parent passes away. Estate plans are very private things, but a little explanation from mom or dad can go a long way toward quashing a family feud.

Communication among the siblings is also the key to avoiding prolonged combat. No matter how complicated the family baggage, it is prudent to try to talk through issues early in any type of a probate matter. Siblings should discuss timelines, who is going to do what and how they will communicate throughout the probate process. Some siblings, often with much success, make a pact at the outset of a probate matter not to let greed or petty squabbles ruin their family relationships. These folks usually had strong relationships before mom or dad passed away.

In virtually all probate matters, it is important to have knowledgeable attorneys work with the parties to explain their rights and represent their interests in any adversarial proceedings. Mediation may help the parties find compromises short of protracted litigation. However, if the parties are unwilling to give in, or if one sibling or faction of siblings is very unreasonable, compromise may be impossible and a trial may be necessary to settle the dispute.

Litigation can be expensive. But perhaps more significantly, litigation tends to augment any rift in the sibling relationship. At every step during litigation, siblings should assess not only the merits of their legal claims, but also the potential adverse, and sometimes permanent, impact the litigation may have on the family.

The legal system cannot engineer relationships. A court seeks to administer a will in accordance with the intent of the decedent and to serve the interests of all beneficiaries. Siblings who disagree about the administration of an estate have to make very personal decisions about whether the money at issue, or the principle of the matter, justifies the likely damage to the sibling relationship and, often, damage to the relationships of future generations.

Patricia L. Davidson of Ashland is a partner in Mirick O’Connell’s Probate, Trust and Fiduciary Litigation Group and the Business and General Litigation Group. Mirick O’Connell has offices in Worcester, Westborough and Boston. Davidson can be reached at


Posted by:  Steven Maimes, The Trust Advisor

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Banks Cash In on Mergers Intended to Elude Taxes

NYT DealBook article by Andrew Ross Sorkin

bank (2)Jamie Dimon, the chief executive of JPMorgan Chase, recently said, “I love America.” Lloyd Blankfein, the chief executive of Goldman Sachs, wrote an opinion article saying, “Investing in America still produces the best return.”

Yet guess who’s behind the recent spate of merger deals in which major United States corporations have renounced their citizenship in search of a lower tax bill? Wall Street banks, led by JPMorgan Chase and Goldman Sachs.

Investment banks are estimated to have collected, or will soon collect, nearly $1 billion in fees over the last three years advising and persuading American companies to move the address of their headquarters abroad (without actually moving). With seven- and eight-figure fees up for grabs, Wall Street bankers — and lawyers, consultants and accountants — have been promoting such deals, known as inversions, to some of the biggest companies in the country, including the American drug giant Pfizer.

Just last week, President Obama criticized these types of transactions, calling the companies engaged in them “corporate deserters.” “My attitude,” he said, “is I don’t care if it’s legal. It’s wrong.” He has suggested legislation, and Senator Carl Levin, the Michigan Democrat who is chairman of the Senate Permanent Subcommittee on Investigations, has proposed to make it more difficult for an American company to renounce its citizenship — and tax bill — by merging with a smaller foreign competitor.

What to call the banks enabling them? How about corporate co-conspirators?

So far, on deals completed or pending, Goldman Sachs is estimated to have made $203 million advising on inversion deals since 2011, according to data from the Deal Intelligence unit of Thomson Reuters. JPMorgan stands to collect $185 million, while Morgan Stanley will make $98 million and Citigroup $72 million.

None of the major Wall Street banks, which received help from American taxpayers in the form of hundreds of billions of dollars in loans, appear to have declined on principle to take an assignment from a client seeking to move its corporate citizenship abroad.

“This is an economic game. There are no virgins anywhere,” said Stephen E. Shay, a professor at Harvard Law School and a former deputy assistant Treasury secretary for international tax affairs in the Obama administration. “We can’t look to the banks to stop inversions. They will not look at this based on morality. They will look at it on the basis of fees.”

All the bankers contacted declined to comment.

Perhaps most troubling, many Wall Street banks are aggressively promoting these transactions to major corporations, arguing that such deals need to be completed quickly before Washington tries to block them. The proposals by President Obama and Senator Levin, neither of which appear to be gaining traction, seek to prevent inversion deals retroactively.

These deals are expected to sap the United States Treasury of $19.46 billion over the next decade, according to the Joint Committee on Taxation. And that figure doesn’t take into consideration any future inversions. Nor does it account for the possible loss of jobs and revenue that will ostensibly move overseas over time.

Of course, privately, bankers point out that there is nothing illegal about inversion deals. “This is going to sound cynical, but as much as I may hate these deals and the ramifications for our country, if I don’t do the deal, my competitor across the street will be happy to do it,” one senior banker told me.

On a conference call with reporters, Mr. Dimon of JPMorgan Chase was asked about inversion deals. His reply?

“You want the choice to be able to go to Walmart to get the lowest prices,” Mr. Dimon said. “Companies should be able to make that choice as well.”

Mr. Dimon’s position is a complicated one. He and his fellow chief executives on Wall Street have been working for the last several years to show their commitment to the United States as they try to rebuild trust after the financial crisis. JPMorgan recently announced plans to invest $100 million in Detroit over the next five years, for example. The firm has also adopted a major program to hire United States military veterans at the bank when they return from service.

And yet, JPMorgan’s work on inversion deals, which clearly can’t be considered good for the country, contradict the firm’s efforts to serve the nation.

At the same time, firms like JPMorgan consistently talk about serving their clients — and there is no question that some of its clients are clamoring to pursue inversion deals. (Some would argue that making American companies more competitive, even if they have a foreign address, is patriotic. I would disagree.)

Some firms internally rationalize work on an inversion deal by saying they worked for the foreign target, rather than the American buyer, according to several prominent deal makers. For example, Roger Altman, the executive chairman of Evercore Partners and a major supporter of President Obama, worked for the British drug maker AstraZeneca on its defense against an offer from Pfizer. Evercore also worked for Dublin-based Shire, which agreed to be taken over by AbbVie, a spinoff of Abbott Laboratories.

Everyone I spoke to on Wall Street about inversion deals said they wished there were no reason for these deals and that our tax system were more competitive and, therefore, more attractive.


 “We have a flawed corporate tax code that is driving U.S. companies overseas,” Mr. Dimon said on the conference call. “If government was smart, they’d look at it holistically,” he added, suggesting that a moratorium on such deals won’t work. “Even if you stop and say, ‘Don’t invert,’ capital will move away.” Mr. Dimon insisted, “I’m just as patriotic as anyone.”

While an overhaul of the corporate tax system may be the ultimate goal, the gridlock in Washington suggests it is unlikely to come anytime soon. Corporate tax reform is nice in theory, but tough in practice. It most likely requires lower tax rates and the closing of loopholes, which many companies are sure to fight. And whatever new, lower tax rate is determined, there will probably be another country willing to lower its rate further, creating a sad race to zero.

“The dirty secret is that unless the U.S. reduces corporate tax rates to less than 10 percent, a reduction in U.S. tax rates is not likely to have much impact on inversions,” said J. Richard Harvey Jr., a professor at Villanova University School of Law and its Graduate Tax Program. “The reason is that even if the U.S. corporate tax rate were somehow reduced to 15 percent, U.S. multinational companies would still invert if they thought it was to their benefit.”

In the meantime, more companies are expected to leave the United States. And Wall Street banks will get paid to help them.


Posted by:  Steven Maimes, The Trust Advisor



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What Philip Seymour Hoffman Should Have Done With His Money

MarketWatch news by Melissa Montgomery-Fitzsimmons

Take care of your family, not the IRS

Philip-Seymour-HoffmanI wish I could have gotten in Philip Seymour Hoffman’s ear to give him some honest estate-planning advice before the magnificently talented actor died from a drug overdose earlier this year.

The recent headlines are about his unwillingness to make “trust-fund kids” of his three children, but as an estate-planning attorney and wealth planning professional, I believe he made some easily avoidable mistakes that could prove damaging in their impact on his family — and all for no clear gain.

As his will lumbers through surrogate’s court probate proceedings in Manhattan, supporting filings have outlined the actor’s wishes: That his kids receive no part of his estimated $35 million estate, and that the kids’ mother, Hoffman’s longtime life partner, costume designer Mimi O’Donnell — whom Hoffman never married — should receive his estate more or less in its entirety.

When a person of substantial means dies, they’ve essentially got three main choices they can make for their money. They can leave it to their family. They can be philanthropic and leave it to one or more nonprofits. Or they can leave it to the United States federal government — the IRS — in the form of estate taxes.

Hoffman’s lack of planning has maximized the IRS’s take with no benefit to his family or to charities. Here’s what I would have advised:

I hear what you’re saying about not wanting to create “trust-fund kids.” I know the idea of wealth without work can create some unappealing traits if care and guidance isn’t provided to the kids, and I understand why you’d want to avoid setting your kids up to fail.

But you’re about to do something that is … there’s no delicate way to say this … foolish. You’re going to do badly by your kids, badly by your partner, Mimi, and badly by the communities you’re part of and care about. You’re going to throw your hard-won dollars down the dark hole we call the IRS, and I don’t think that’s your real intention.

First, your estate is going to be tax-eviscerated by your straight bequest to Mimi. It might not be right, given how long you two have been together, but the reality is there’s only an estate-tax deduction for legally married couples. If you two are married, Mimi gets 100% of your estate with no current tax obligation if you die. But because you’re not, she’s going to get hammered, hard, for about 40% of everything you’re worth over $5.4 million. That’s about $12 million that’s going to go straight to the IRS.

I know you’re a passionate guy — you care deeply about certain charities and causes you’ve supported in the past, especially ones that fight hunger, provide disaster relief, and take care of the needs of aging actors and actresses. Wouldn’t you rather see your money go to those kinds of badly needed initiatives than to the government?

Second, let’s examine the “no trusts, ever” thing. That’s just painting with an overly broad brush that coats over all the things you can do for your kids with trust structures without ever even mildly risking their becoming what you think of as “trust-fund kids.”

Do you want to pay for your kids’ education? Of course you do. You can fund that through a trust. Even if Mimi were to get married after you pass away and her spouse had other ideas about what to do with all that money rather than educating your kids, nothing could derail the trusts you set up for their education.

Same thing for health-care matters. Suppose one of the kids turns up with leukemia or is in a very serious car accident. And suppose Mimi makes bad investments, or that she herself passes away. Now who’s making sure the funds for your kids are there when they need them? Not to buy fast cars and expensive clothes, but to pay for things you’d pay for in a heartbeat if you were there with them.

If you do proper estate planning ahead of time, you can be pretty sure that what you want to have happen in the event you die WILL happen when you die. You can choose how much goes in each bucket — to Mimi, to the kids, to charities you care about, and even to the IRS if you think that’s important, too. You can make those calls and set the rules in a way that will reinforce what you would have done if you were still alive.

You don’t even have to give the kids any money — but wouldn’t you rather see that $12 million that your estate would pay directly to the IRS instead placed in a trust designed to pay for emergency health care for them, and then have it flow on to one of the actors’ charities you’ve always backed rather than into the IRS’s bank account?

You can set up trust rules that promote the life lessons of hard work and appreciation for the less fortunate that you care about. You can create something that is a learning tool, not a wellspring of dependency.

Further, the right trust structure can keep your estate out of probate court, where nosy reporters and sensationalistic websites have a field day reporting every detail of your will.

And one last thing: The only will you have in effect refers solely to your son Cooper, who’s now 10. You’ve got two daughters now who are 5 and 7 years old. That means you haven’t given this disciplined thought in at least seven or eight years. That’s almost back to the time you played Truman Capote and won your Oscar.

That’s a long time to go without planning. You owe it to your kids and to Mimi to get on this, to think it through, to update it. And to not dismiss all the structural planning that will help get done what you really want to get done. And to support the causes and nonprofits you think are important — not what some congressman or senator thinks is important.

Well, that’s what I would have told him. Sometimes great artists like Hoffman aren’t the most facile with planning for their family’s financial future. It’s clear he really needed help — and it’s not clear whether he got it.

Maybe he was given this straight talk and still decided to go his own way. But it’s too bad, if in the end he didn’t have people around him who were willing to speak frankly and clearly to him.


Posted by:  Steven Maimes, The Trust Advisor


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The Typical Household, Now Worth a Third Less

NYT article by Anna Bernasek

dataEconomic inequality in the United States has been receiving a lot of attention. But it’s not merely an issue of the rich getting richer. The typical American household has been getting poorer, too.

The inflation-adjusted net worth for the typical household was $87,992 in 2003. Ten years later, it was only $56,335, or a 36 percent decline, according to a study financed by the Russell Sage Foundation. Those are the figures for a household at the median point in the wealth distribution — the level at which there are an equal number of households whose worth is higher and lower. But during the same period, the net worth of wealthy households increased substantially.

The Russell Sage study also examined net worth at the 95th percentile. (For households at that level, 94 percent of the population had less wealth and 4 percent had more.) It found that for this well-do-do slice of the population, household net worth increased 14 percent over the same 10 years. Other research, by economists like Edward Wolff at New York University, has shown even greater gains in wealth for the richest 1 percent of households.

For households at the median level of net worth, much of the damage has occurred since the start of the last recession in 2007. Until then, net worth had been rising for the typical household, although at a slower pace than for households in higher wealth brackets. But much of the gain for many typical households came from the rising value of their homes. Exclude that housing wealth and the picture is worse: Median net worth began to decline even earlier.

“The housing bubble basically hid a trend of declining financial wealth at the median that began in 2001,” said Fabian T. Pfeffer, the University of Michigan professor who is lead author of the Russell Sage Foundation study.

The reasons for these declines are complex and controversial, but one point seems clear: When only a few people are winning and more than half the population is losing, surely something is amiss.


Posted by:  Steven Maimes, The Trust Advisor

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Samsung Heirs Could Pay a Massive US$6 Billion Inheritance Tax

China Topix article by Ren Benavidez 

Heirs of Samsung Electronics Group’s founder face a stupendous US$6 billion inheritance tax bill.

Samsung Group chairman Lee Kun Hee, 72, has been in a hospital for three months following a heart attack. His frail condition has led to speculations about the future of the company, said Reuters.

Lee is a legendary figure in South Korea as the man who turned Samsung Electronics into a powerful conglomerate. He is also the country’s richest man with an estimated net worth of US$11.4 billion.

Under Korean inheritance law, an heir will have to pay 50 percent in tax when inheriting such wealth, indicating an inheritance tax bill of some US$6 billion.

Tax attorney Kim Hyeon Jin said it may be possible to avoid this massive tax by placing the money in a foundation, but that will cause the Lee family to lose control over some of their assets.

Reports claim that in order to pay for the inheritance bill, the Lees are planning to open two additional Samsung businesses: Cheil Industries Inc. and Samsung SDS Co.

Cheil Industries, more popularly known as Samsung Everland, will operate golf courses and zoos while Samsung SDS is a provider of technology services.

The two offerings will not only raise the money to cover the inheritance bill and comply with government limits on conglomerates, but will also give the public a view of some parts of the Samsung empire that are not well known.

Lee Jae Yong, 46, son of the elder Lee, is the groups’s presumed heir apparent.

He graduated from Seoul National University and has proven himself by forging partnerships with Apple and Google.

Doubts persist if he can command the same respect as his father.


Posted by:  Steven Maimes, The Trust Advisor


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Money Fund Rule Changes Offer New Reality to U.S. Retail Investors

Reuters news by Tim McLaughlin and Ross Kerber

money hundredsNew rules announced on Wednesday will likely drive safety-oriented retail investors away from some money market funds because they highlight risks and make it harder to pull cash out when market turmoil strikes.

The U.S. Securities and Exchange Commission’s reform will force institutional “prime” money market funds to float their share price, a major change from the current convention that allows them to maintain a stable $1 per share net asset value. The new rules also would allow money funds to impose fees and restrictions on withdrawals during times of extreme market stress.

“Why would anyone stay in these money funds once they’re floating, rather than just go to a government or treasury fund that’s not floating at all?” said Diahann Lassus, president of Lassus Wherley & Associates, a New Jersey financial adviser.

Institutional prime money funds attract mostly professional investors and are considered more risky because of their exposure to short-term corporate debt. Investment advisers say money could flow away from these funds and into funds composed of safer government securities.

Bank-insured sweep accounts will be a clear alternative for the safety-first crowd, while short-duration bond funds appeal to investors hunting for higher yields, financial advisers said.

Money funds already have lost some luster during an extended period of near-zero interest rates. Investors typically receive yields of 0.01 percent on their money, a losing proposition if you factor in inflation.

Money fund providers have waived some $24 billion in fees over the past five years to give customers that yield.

Marie Chandoha, President and CEO of Charles Schwab Investment Management, a top money fund provider that oversees $158.2 billion in those investments, downplayed the new SEC rule imposing barriers or penalties on withdrawals.

“It’s an extreme scenario where this would even be considered,” Chandoha said.

Mike Vogelzang, who is president of Boston Advisors LLC, an investment management company with about $2.8 billion in assets under management, said some of his clients might push back against the rules. And if they do, he will suggest they use a bank-insured account for cash, he said.

“Most of this is going to be about education and having them understand that a dollar is not a dollar any more in these money market funds,” Vogelzang said.

Annapolis, Maryland-based financial adviser Martin Hopkins, said the new rules will help investors understand they can lose money.

“Most clients see these as just like cash, and they are not,” Hopkins said in an email.

Short duration bond fund assets, among the vehicles advisers think will benefit from a possible exit from MMFs, have already surged in recent years because of relatively high yields.

At the end of June, short duration bond fund assets totaled $319.4 billion, up 172 percent from $117.6 billion at the end of March 2009, at about the same time the stock market hit rock bottom.


Posted by:  Steven Maimes, The Trust Advisor


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Trusts: Out With the Old, In With the New

Wills, Trusts & Estates Prof Blog post by Gerry W. Beyer

truAs families reunite, it is a good time to review any trusts created during a family member’s lifetime or at death.  Because families can often have a variety of trusts, created at different stages during different stages of their lives, it is common that they have not updated them in a while.

Accordingly, if estate planners do not stay on top of these changes, problems are bound to arise.  Many trusts are irrevocable, meaning that the grantor cannot modify their terms.  However, depending upon the trust’s provisions, the trustee’s powers and the state’s laws, there may be strategies to administer them more flexibly.

Some common problems that occur when trusts are not updated are when distribution ages occur earlier than preferred and assets may appreciate more dramatically than anticipated.  In situations like this, one option is not to put any additional money into the trusts and instead create new trusts with extended distribution terms for any future transfers.  Another choice may be to rely on the terms of the trust and state law to enable the trustees to distribute the trust property to different trusts for the benefit of the beneficiaries with a stretched out distribution schedule.

Some of the issues that arise with old trusts can be evaded by making new trusts as flexible as possible.  “Trusts are live, dynamic documents and must be managed and reviewed as laws and family circumstances change.”

See Judith Saxe, Old Trusts, New Problems, Private Wealth, July 23, 2014.


Posted by:  Steven Maimes, The Trust Advisor


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UBS Urges Families to Break the Silence On Inheritance

ubs aaInheritance is not being discussed at the dinner table. But it should be, according to UBS Wealth Management Americas’ quarterly UBS Investor Watch report (see links at end).

The report found that nearly half (46%) of benefactors have not discussed their inheritance plans with their children. And only 34% have revealed their wealth. More discussions lead to better and happier wealth transfers — and, as the report points out, an estimated $40 trillion of personal wealth expected to change hands by 2050 means there is a lot to talk about.

Survey findings

  • The traditional view of inheritance is changing—it’s more than a will.
  • Parents and children aren’t talking to each other about it—but they’re happier if they do.
  • Reluctance to communicate is driven by emotional barriers on both sides.
  • Increasing longevity makes inheritance only part of wealth transfer planning.
  • Boomers and Millennials have different perspectives on wealth transfer.

For many, the idea of inheritance means discussions in a lawyer’s office about a family member who has passed on, and a dramatic reveal of the contents of a will. The latest issue of UBS Investor Watch—our quarterly survey—examines the changing dynamics surrounding inheritance; in particular, what families are saying, what they’re not—and why.


The traditional view of inheritance is changing—it’s more than a will. Inheritance planning is no longer about just having a will or waiting until the end. It’s about parents actively engaging children earlier on. Satisfaction with the inheritance process goes up significantly when children know the details ahead of time—with 90% being highly satisfied.

Parents and children aren’t talking to each other about it—but they’re happier if they do. Active inheritance planning increases the need for dialogue. But neither party feels comfortable having this conversation. In fact, while 83% of parents have a current will, only 50% have discussed inheritance plans with their children. And only 34% have revealed their wealth.

Reluctance to communicate is driven by emotional barriers on both sides. Parents don’t think inheritance is a pressing issue and are often in denial about their mortality. They also don’t want their children to feel “entitled.” Conversely, children don’t want to appear greedy or break the family standard of not talking about money. But both sides agree; it’s up to the parents to start the conversation.

Increasing longevity means inheritance is just part of wealth transfer planning.

Inheritance planning includes elements such as “giving while living,” multigenerational giving, and tax and estate planning. 60% of parents would prefer to begin passing on their wealth to their children while living. But they must take into account the impact of realities such as long-term care and increasing healthcare costs.

Boomers and Millennials have different perspectives on wealth transfer. As Boomers live longer, they prefer to transfer part of their wealth while living—and they want to do so more than parents of any other generation—­to enable and share cherished experiences with their children and grandchildren.

Read the e-brochure

Read the report (PDF)


Posted by:  Steven Maimes, The Trust Advisor


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